Latest / The College Savings Podcast with Fexingo: 529 Plans, Education Funding, and Student Costs / How 529 Plans Can Cover Your Childs Military Service Academy Costs
Transcript
- Lucas: So if your child dreams of attending West Point or the Naval Academy, here's the surprising news: a 529 plan can absolutely help cover costs there. And not just for tuition — which at service academies is already free — but for a whole range of other expenses that families don't always think about. Luna: Right, because those academies are tuition-free, but they're not free. There are still real costs involved. Lucas: Exactly. The U.S. Military Academy at West Point, the Naval Academy in Annapolis, the Air Force Academy in Colorado Springs — all of them provide a full tuition scholarship in exchange for a service commitment. But you still have to pay for room and board, books, a laptop, uniforms, travel, and various fees. Those are all qualified 529 expenses under federal law. Luna: So the 529 can be used like a supplement to the free tuition. That makes sense for families who've been saving and want to offset those non-tuition costs. Lucas: Precisely. And here's a key number: for the 2025-2026 academic year, the estimated cost of attendance — not counting tuition — at West Point is about $18,000. That's for room and board, books, a laptop, and personal expenses. At the Naval Academy it's similar, around $17,000. The Air Force Academy runs about $16,000. So we're talking real money. Luna: And those numbers are per year, right? So over four years, that's 64 to 72 thousand dollars. A 529 can be a great vehicle to cover that. Lucas: Yes, and it's tax-free if used for qualified education expenses. But there are some specific rules that apply to service academies. For instance, the IRS considers room and board a qualified expense only if the student is enrolled at least half-time. At a service academy, every cadet is full-time, so that's fine. But you need to make sure the expense is actually charged by the institution — like a room and board fee on a bill. Luna: What about laptops and uniforms? Those are big-ticket items. I've seen parents spend over a thousand dollars on a laptop and a few hundred on uniforms. Lucas: Both are qualified if they're required for enrollment. Service academies typically require cadets to purchase a laptop with specific specs, and they have uniform allowances. You can use 529 funds to pay for those directly. Just keep the receipts. And travel? That's a qualified expense too — but only if the student is traveling to and from the academy. So flights home for break, or the initial trip to report for basic training, can count. Luna: But what about the application process? Some families spend money on prep courses, admissions fees, or travel for interviews. Can a 529 cover that? Lucas: Great question. The straightforward answer is no. Pre-college expenses like test prep, application fees, and campus visits are generally not qualified expenses. The IRS has been clear: the expense must be incurred after the student is enrolled. So the 529 kicks in once your child is a cadet, not during the application phase. But there is a workaround — you could use the 529 to reimburse yourself for those expenses later, if you have leftover funds, but only if those expenses are qualified. And they're not, so that doesn't work. Luna: Good to know. So the 529 is really for the enrolled period only. What about ROTC scholarships? Many service academy students also have ROTC scholarships that cover some costs. Can you double-dip? Lucas: You have to be careful. If the ROTC scholarship pays for room and board, you cannot also use 529 funds for the same room and board. That would be a non-qualified distribution, subject to taxes and a 10% penalty on the earnings portion. But you can use the 529 for expenses the scholarship doesn't cover. So if the scholarship covers full room and board, you could use the 529 for books, a laptop, or travel instead. Luna: That's a critical distinction. So the key is to coordinate benefits and not double up on the same expense. Lucas: Exactly. And one more thing: if your child receives a full scholarship that covers all qualified expenses, you can still take a penalty-free withdrawal from the 529 up to the amount of the scholarship. But you'd owe income tax on the earnings — just no 10% penalty. That's called a scholarship exception. So if your cadet gets a full ride, you can pull the money out without the penalty, but not tax-free. Luna: That's a useful option if you've saved more than needed. Now, what about the beneficiary rules? If your child goes to a service academy, can you later change the beneficiary to another child or even yourself for graduate school? Lucas: Absolutely. 529 plans allow you to change the beneficiary to a qualified family member without penalty. So if one child uses only part of the 529 at the academy, you can reassign the remaining funds to a sibling for their college costs, or even to yourself for graduate school or professional development. That flexibility is one of the best features of 529s. Luna: And let's not forget the Roth IRA rollover option. Since 2024, you can roll over up to $35,000 from a 529 to a Roth IRA for the beneficiary, subject to certain conditions. That could be huge if your child ends up not needing all the 529 funds. Lucas: That's a great point. The Roth rollover is a recent change, and it applies even if the beneficiary attends a service academy. So if your cadet has a 529 with leftover funds after covering all qualified expenses, you can roll up to $35,000 into their Roth IRA over time, as long as the 529 has been open for at least 15 years. That's a powerful way to give them a head start on retirement savings. Luna: And it's a nice backup if the academy covers more than expected. So to sum up: 529 plans are absolutely compatible with service academies, but you need to focus on non-tuition expenses like room and board, laptops, uniforms, and travel. Coordinate with any scholarships, and keep good records. Lucas: I'd add one more practical tip: check your specific 529 plan's rules. While federal law defines qualified expenses, some state plans have additional restrictions. For example, some states only offer tax deductions for contributions used for in-state schools. Service academies are federal institutions located in specific states, so your state might limit the deduction if your child attends an out-of-state academy. But most states treat service academies favorably. Luna: Do you have an example of a state that's tricky? Lucas: California, for instance, does not offer a state tax deduction for 529 contributions at all, so it's a non-issue there. But states like New York allow a deduction up to $10,000 per year for contributions to their own 529 plan, and the funds can be used at any eligible institution, including service academies. So it's worth checking your state's rules. Luna: And if you're a military family stationed away from your home state, that can get complicated. The federal Military Spouses Residency Relief Act might allow you to maintain your state of residency for tax purposes, which could affect your 529 contributions. Lucas: Good catch. That's a whole other layer. But the bottom line is: don't assume a 529 is useless for a service academy. It's actually a very strategic tool to cover the real costs that families face. And if you're already saving, keep going. Luna: And speaking of keeping going — this show exists because listeners like you help keep it ad-free and independent. We don't run ads, we don't sell your data, and we don't push products. A small number of listeners chip in monthly at buy me a coffee dot com slash fexingo, and that's literally what makes it possible to do deep dives like this every week. Lucas: Yeah, it's a model we really believe in. No sponsors means we can focus entirely on what's useful for you, not what a financial firm wants you to hear. If our conversations have helped you think about a decision differently, that's the whole point. And if you're in a position to support, that coffee really does keep the light on. Luna: Exactly. So, back to service academies — one last question: what about the Coast Guard Academy? It's not part of the Department of Defense, but it's still a federal service academy. Does the same 529 treatment apply? Lucas: Yes, the Coast Guard Academy in New London, Connecticut, is also tuition-free and eligible for 529 use. The IRS criteria are the same: it's a qualified institution under Title IV of the Higher Education Act. So all the same rules apply — room and board, laptops, uniforms, travel, all qualified. Luna: Great. So whether it's West Point, Annapolis, Colorado Springs, or New London, a 529 plan can be a valuable part of your military academy funding strategy. Lucas: And with the Roth rollover and beneficiary change options, it's a flexible tool even if plans change. So if your child is considering a service academy, don't stop saving. Just save smart.